Yelp Shares Leap to All-Time High

Yelp Inc.’s surging revenue growth has piqued investors’ interest, setting an all-time high for shares of a company that has yet to report an outright profit.

Stock-based compensation drove the local reviews service to another loss in the first quarter, but observers latched onto the company’s improving core profit and soaring revenue, which prompted management to lift its sales estimate for the year.

Shares rocketed as high as 27% to $32.14 Thursday, well above its $15 initial public offering price. The stock has taken a rollercoaster path since its market debut in early 2012, sinking as low as $14.10 earlier in its brief history.

Thursday’s rally might have benefited from panicking short-sellers, who held roughly 23% of Yelp 's available shares last month. Short-sellers bet that a company’s share price will weaken; when its value instead improves, traders often accelerate the rally by abandoning their positions to cut their losses.

Yelp’s $2.2 billion market capitalization–according to FactSet Research–still pales next to big-name rivals Google Inc. and Facebook Inc. Those companies generate revenue from many sources, but they also compete directly with Yelp for local advertisers’ business online.

Yelp’s user-generated reviews of restaurants, stores and other businesses are open to contributions and free to read, so the company generates revenue from local advertising and businesses that pay to have their profiles highlighted.

Yelp’s revenue from local ads surged 81%, helping the company generate $46.1 million of revenue in the latest quarter from a base of 102 million users and 45,000 active business accounts.

“What that tells you is that Yelp is grabbing share,” Cantor Fitzgerald analyst Youssef Squali said, citing estimates of similar revenue from the likes of Google.

The company also made progress serving more of its users on smartphones, with 36% of all ad impressions coming from mobile devices in the latest quarter, up from 25% three months earlier.

Those figures encourage J.P. Morgan analyst Kaizad Gotla, who notes that mobile devices help wean the company off referrals from Google’s search engine. Analysts estimate about half of all visits to the online service come from Google searches, threatening Yelp’s revenue base.

Mobile usage “reduces their dependence on Google for the other traffic,” he says, adding the mobile app makes Yelp “able to drive a more direct relationship with their users.”

Mr. Gotla still has a neutral rating on Yelp’s stock however, warning the company still has plenty of work ahead of it in gaining traction in international markets.